Income Boost from Right to Work Laws

July 22, 2014

Incomes rise when Right to Work laws are implemented, according to a study from the Competitive Enterprise Institute by Richard Vedder and Jonathan Robe.

Currently, 26 states allow unions to force new employees to join unions or, at least, pay union dues. But 24 states have Right to Work (RTW) laws, which grant workers the right not to join unions and pay dues as a condition of their employment.

Vedder and Robe analyzed the impact of RTW laws on state economies, as RTW laws reduce union presence. Unionization increases labor costs, which makes capital investment less attractive. Right to Work laws, on the other hand, have a positive impact on economic growth:

Total employment growth in the United States from 1977 to 2012 was 71 percent. In RTW states, employment growth was 105.3 percent, while non-RTW states saw growth of only 50 percent.

Americans in non-RTW states have been moving to states with the laws. From 2000 to 2009, 4.9 million Americans moved from non-RTW states to RTW states.

According to economist Robert Reed, controlling for economic conditions in a state prior to the adoption of a RTW law, wages increase when RTW laws are implemented. In 2000, average wages were 6.68 percent higher in RTW states than in non-RTW states.

Real personal income from 1977 to 2012 grew by 123 percent in the United States, but RTW states saw a growth rate of 165 percent.

The authors also calculated the per capita income loss from not having an RTW law:

According to the report, the 10 states most negatively affected by their lack of an RTW law are Alaska, Connecticut, California, New Jersey, Illinois, Hawaii, Maryland, Wisconsin, New York and Michigan.

According to Vedder and Robe's calculations, Alaskans suffered a per capita income loss of $5,238 due to the state's lack of an RTW law.

The authors note that Michigan provides an especially stark example of the impact of Right to Work laws on wages. In 1977, the state's per capita income was 7.4 percent above the U.S. average -- a figure that had dropped to 12.2 percent below the national average by 2012. If the state had a RTW law, two-thirds of Michigan's current per capita income deficiency would be eliminated.